Top 11 trends for India Inc. in 2011

by Deepak Sharma | May 2018

Leaders should look for trends in the business environment to develop successful strategies and gain advantange.

 
 

In brief:

 

• Optimism is high following a prompt recovery from the recent financial crisis and there are a number of business trends to watch in 2011.

 

• India is increasingly being recognised as a key emerging market due to its large untapped potential – particularly in its rural markets.

 

• The booming telecom market provides scope for internet services and e-commerce to flourish

 

• Urbanisation, rising incomes and greater gender equality are providing big opportunities in retail and consumer goods

 

• Challenges regarding inflation and economic volatility are persistent

 

• As the Indian economy grows, sustainable development will become an ever important part of the agenda

 

 

2011 has been heralded as the year of India. Foreign investment is predicted to increase and the Elephant economy is said to be on the right path to overtake China in terms of GDP growth within the next few years. 

 

Business trends play an important role in identifying emerging opportunities and keeping a tab on potential threats in the external environment. Our experts have been tracking opportunities and challenges for companies in India throughout 2010, identifying approximately 50 key business trends from which we have selected the top 11 to watch out for in 2011.

 

To do so, we have rated trends on the following five criteria, each carrying the same weighting: relevance to the business world; likelihood of occurrence in 2011; continuity beyond 2011; breadth of impact across economic sectors; relevance in terms of geography (India vs. the World: 3G is officially being launched in India this year, thus has scored highly).

 


3G - The next growth driver

 

 

After years of dispute between ministries and the telecom industry, 15 telecom companies bid for licenses in 22 Circles in a 3G auction that generated Rs. 677.2 billion ($14.6 billion) in revenue for the Government, almost twice the predicted amount.

One of the factors that sets India’s telecom market apart is the ferocity of the tariff wars that have raged in the past, resulting in the cheapest call rates across the globe ($0.01/min. or 2 Paise/second). If 3G services follow suit, the effects of the spread of the 3G network will be significant. Kunal Bajaj (of BDA Connect) believes that the current 40 million users equipped with 3G phones will rise to 60 million within the next 2 years, which, added to 29 million laptop users will result in a market of $15 Billion for 3G services by 2013.

The arrival of 3G technology as well as the emergence and growing popularity of scores of websites based on user-generated content, such as Facebook, YouTube and Twitter will allow enterprises to gain access to potential customers which were not within reach so far.

 

Web 2.0 - Creating communities online

 

 

India is poised for something of an internet revolution. As the variety of mediums such as Wi-Fi spots, 3G USB Keys and mobiles used for Internet access increase; the ease with which consumers will be able to log on to the web will continue to rise. At the same time, social networks and other user-generated content oriented websites are becoming more popular and numerous. In July 2010, Comscore revealed that more than 33 million Internet users in India visited social networking sites. This represents 84% of all Indian internet users and an increase of 43% year-on-year.

All the while, e-commerce and m-commerce are on the verge of becoming a major distribution channel. As online purchases spread from online ticketing, through companies such as IRCTC and MakeMyTrip, to consumer packaged goods; digital advertising will explode, triggering a demand among relevant and targeted audiences - an area in which social networks have unique capabilities. Enterprises will also be able to benefit from Enterprise Social Networking as well as the emergence of Cloud computing facilities.

 

 

Made for India - Made by the World

 

 

Western brands are launching new products and new brands dedicated to India and other emerging markets. As current economic trends have shown, the consumption epicentre is slowly shifting from the West to the East. In addition, Western brands still enjoy a perception of quality and by customising products for the local population, they will gain a double benefit of a better fit, as well as an attractive value proposition needed for recognition within emerging markets.

The traditional four Ps will be replaced by the four As: affordability, awareness, availability and acceptability for local markets. Indeed, companies are increasingly alert to the “Rs.5 strategy”, which sacrifices the size of unitary sales for a much larger market penetration.

For example:

 

• Nokia had earlier launched a basic handset with a torch (large parts of rural India don't have electricity) and an alarm clock

 

• Coca-Cola and Pepsi sell 200 ml cans at Rs.5

 

• Chik shampoo created the jasmine variant for local women

 

• TVS mopeds created functional value in tune with the 'all purpose' vehicle

 

• Philips designed gas stoves and lanterns that will be useful to such markets, as current stoves are fuelled with anything and everything and often present health risks.

 

• Tide launched washing powder sachets at Rs.1

 

These strategies, which have challenged the established norm, are becoming the standard in many parts of India.

 

 

Inflation - Raising its head, again

 

 

The Indian government has been trying to keep inflation at bay; however, this has proved to be challenging. It reached a high point of 9.7% in October 2010, far above the central bank’s recent forecast of 5.5% for March 2011. A revised figure suggests inflation is likely to be closer to 7% primarily due to rising food prices.

According to CARE Ratings, food inflation itself is at its worst, having reached a 23 week-high of 18.32% on December 25th, 2010. The main problems result from a lack of supply. Food producers and suppliers are finding it impossible to meet the demand from the increasing number of consumers. This is exacerbated by land restrictions, archaic retail networks and poor infrastructure. As a result, demand for other consumer goods may be pushed downwards as households end up spending a higher proportionate of their disposable income on food.

Subir Gokarn, deputy governor of the central bank, calculated that a 39% rise in income per capita in the previous five years might have engendered an extra 220 million regular consumers of milk, eggs, meat and fish. As Mr Gokarn points out, suppliers simply haven’t been able to keep up with the extra demand.

Further, India’s current account deficit has grown to 4.3% of GDP in the quarter ending September 2010. Though this hasn’t seemed to affect India’s growth, Goldman Sachs points out that “funding a growing deficit from short-term capital flows” presents “the biggest risk to India’s growth”.
The Government will have a tough challenge to tackle this year, as no quick-fixes will suffice to shackle rising prices.

 

 

Uncertainty - Never too far

 

 

India has experienced increasing business uncertainty recently due to the integration of its economy with the rest of the world. The financial crisis also negatively affected India despite its resilient growth. In addition, protectionist measures recently announced by Barack Obama, which provide fiscal exemption for firms creating employment in the US and encourage less subcontracting abroad, might further affect the IT sector in India.

Moreover, the proliferation of players and products in the Indian market means that consumer behaviour and preferences will continue to change ever faster. As a result, it is becoming harder for firms to predict the future and develop long-term and even medium–term strategies.

In addition, political issues such as terrorist threats and other separatist movements, as well as farming rebellions against industrial projects, such as the Nano project in Singur will contribute to the general turmoil.

India is on the path to becoming increasingly business friendly, however long-standing problems will have to be resolved if the country is to successfully take on new challenges.

 

 

Rising Rural - Hard to ignore

 

 

Rural India has become a big market. Many businesses are now developing new marketing strategies to target rural consumers who have seen an increase in their purchasing power. This is due to the rise of procurement prices and less-rain dependant activities such as poultry or fisheries, the switch to new crops and technology, government schemes like NREGS and an increase in wages and benefits from loan waivers for farmers. The media has provided a window into urban lifestyles, creating aspirations for similar goods and services in rural India. As such, companies have identified a latent demand which promises good prospects.

Rural India, a large and untapped market of more than 800 million people, will prove to be a key growth driver, especially in the automobile, healthcare, telecom, retail, real estate, banking and insurance sectors. For example, LG Electronics developed the customised TV Sampoorna, which is cheap and capable of picking up low-intensity signals, for the rural markets. Dabur decided to capitalise on the rural opportunity with Odomos Oil at an affordable price, after identifying the largely untapped mosquito repellent market in rural India.

 

 

Urbanomics - The emerging segments

 

 

Three major emerging segments: children, adolescents and urban Indian women are the new drivers of the urban consumer market.

Children are increasingly influencing their parents in purchase decisions, even for cars, consumer durables and electronics. Exposed to a range of consumer goods through the media, children do not hesitate to voice their preferences to their parents when it comes to decisions that will affect them. In addition, thanks to their familiarity with product features, parents trust their judgement regarding technologically based consumer goods markets.

Indeed, companies are attentive to the 400 million Indians under 15 years of age when designing and packaging products. For instance, the Kissan range of jams offers a free “Tom and Jerry smacker” with it. Businesses also try to build customer relationships with children when they are young. An example is L’Oreal who created a new line called Garnier Kids aimed at creating brand loyalty.

An increase in brand awareness and purchasing power among young urban Indians also make them a primary target. In their mid-twenties, they spend a lot of time outside home and are not used to saving money. They don’t hesitate to spend on expensive global brands and often want two and four-wheelers.

The growing independence and increasing workforce participation of urban women has led them to spend more time out of home and play a more active role in consumption decisions. As a result, product categories targeting urban women have increased a lot, for instance in jewellery, cosmetics, apparel, mobile phones or computers.

 

All of these consumer segments represent tremendous growth opportunities for India Inc.

 

 

Big retail - Coming soon near you

 

 

Long-term growth has been predicted for the estimated $400 billion Indian retail market, the fifth largest in the world. “Mom and Pop outlets” are now facing competition from new medium sized players and major Indian retailers such as Pantaloons which launched India’s first hypermarket “Big Bazaar” in 2001.

“Big retail” in India is supported by strong drivers such as an increasing numbers of families with rising incomes, urbanisation leading to higher customer density, improvement in the transportation infrastructure, increasing automobile penetration and use of credit cards.

The organised retail sector experienced sluggish growth in 2008 when the Indian economy was negatively impacted by the global financial crisis; however its fortunes have changed since then. Costs have remained reasonably stable and companies have also rationalised their strategies based on market feedback.

Indian retailers have cut down their losses in 2009-10 compared to a year ago and many have achieved high double digit growth in their sales. More action is expected in 2011 with further penetration of organised retail at an increased pace.
 

 

 

Health is wealth

 

 

A concerted effort of Indians to improve their health and wellbeing is another emerging trend for 2011 as they aim to look after their body more, especially in urban areas. Health concerns have typically focused on the excessive use of pesticides in agriculture, as well as obesity, both of which are being increasingly perceived as major issues in India. Regarding obesity, a study by OECD, recently published in the Lancet, revealed that India's overweight rates increased by 20% between 1998 and 2005. Currently, almost 1 in 5 men and over 1 in 6 women are overweight. This has led to a considerable increase in cases of heart disease and diabetes.

Thanks to the rising concerns for health and wellbeing in India, the size of the fitness market, notably comprising of food supplements, low fat and sugar-free food, alternative therapies and health clubs is growing. As Indians become more aware of the benefits associated with various ingredients, nutritional information on packaging is becoming more readily available. As a result, many companies have started to target the health conscious by launching healthy products, such as Horlicks with the brand “Foodles” in the noodle market.

 

 

E for Environment - The greening drive

 

 

Public demand for a cleaner and healthier environment is increasing in India. Rapid economic growth and high population density are putting significant pressure on natural resources.

India must address its energy-intensive model and wasteful mind-set regarding production and consumption of resources. That being said, an increasing number of players have decided to take action to protect the environment. The Ministry of Environment is leading India’s climate change and environment policies and has been stringent regarding natural resource extraction in sectors like mining.

Environmental protection is gaining in importance in India. Clean technology and pollution controls are covering an increasing number of firms. On March 9th, 2010, India formally agreed to join the international climate change agreement in Copenhagen. Moreover, in the Union Budget 2010-11, the government announced the setting up of the National Clean Energy Fund (NCEF) for funding research and innovative projects in clean technologies. Led by its ministry, India is seemingly getting to grips with the world’s greening ideals.

 

 

M & A - Urge to merge

 

 

To satisfy their growth ambitions, India’s free-spending companies will look for acquisitions in India as well as overseas.

If one is to judge by this year’s performance, deal volumes have exploded, tripling from US$21.3 billion last year to US$67.2 billion for 2010, just below pre-crisis levels of US$68 billion in 2007, according to Reuters.

Overseas deals have also increased. For example Bharti Airtel’s acquisition of the African telecom assets of Zain for US$10.7 billion and the acquisition of Grosvenor House by Sahara for US$757 million show scope for further inorganic growth in 2011.

Outbound M&A will be vigorously driven by IT and natural resource sectors given the huge requirement of raw material security for Indian players. In the Indian market, sectors with busy M&A activity will include healthcare, consumer goods and telecom. Indeed, "one of the key themes is telecoms consolidation”, which given recent investment in 3G licences and anticipated changes to M&A guidelines will be interesting, as Frank Hancock (MD Barclays India) observed. Bankers are expecting M&A levels in 2011 to surpass this year’s figures.

The year 2011 promises to be a busy one. All of the trends mentioned point to an increase in activity and a number of opportunities for Indian companies. However 2011 also comes with a range of challenges to consider when making important strategic decisions.


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